U.S. homebuilder sentiment surged in October, reaching a six-month high amid expectations that falling mortgage rates would spur buyer demand and help absorb housing inventory.
Despite remaining below the 50 breakeven point for the 18th straight month, the National Association of Home Builders/Wells Fargo Housing Market Index rose five points to 37 in October. This marks the highest reading for the index since April, and above the economist’s forecasts of 33.
Historically high interest rates have suppressed housing demand, leaving a glut of unsold new builds on the market. While mortgage rates have softened recently, increasing economic uncertainty and a struggling labor market have deterred many potential buyers from entering the market.
“While recent declines for mortgage rates are an encouraging sign for affordability conditions, the market remains challenging,” said NAHB chairman Buddy Hughes, per Reuters. “The housing market has some areas with firm demand, including … ongoing solid conditions for the luxury market. However, most home buyers are still on the sidelines.”
Zooming in, the survey’s measure of current sales conditions rose four points to 38 this month. At the same time, its gauge of future sales surged nine points to 54, while a measure of prospective buyer traffic increased four points to 25.
In an effort to attract buyers, builders have been reducing housing prices. In fact, 38% of builders reported trimming price tags on new builds, with an average reduction of 6%, the largest in a year.
In August, new housing inventory declined after reaching some of the highest recorded levels since late 2007. More recent data remains on pause amid the continued government shutdown.
The NAHB estimated new single-family building permits rebounded in September following a steep drop in August to the lowest level in over two years.
“Based on modeling of historical data, the October increase for the HMI [Housing Market Index] suggests an approximate 3% increase for the September single-family permit data on a seasonally adjusted annual rate basis,” said NAHB chief economist Robert Dietz.